Adeia Inc

Previous wording

Following the Separation, we are a leading IP licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and over 11,000 patents and patent applications worldwide. In order to serve an increasingly connected world, we invent, develop, and license fundamental innovations that enhance billions of devices and shape the way millions of people explore and experience entertainment. Through our IP licensing business, we help enable extraordinary experiences at home and on the go for millions of consumers around the world, with IP that helps elevate content and improves how audiences connect with it in a way that is more intelligent, immersive and personal. Through providing the IP that helps to power smart devices, entertainment experiences and more, we have created a unified ecosystem that reaches highly-engaged consumers and uncovered new business opportunities.

Current wording

Adeia Inc. (formerly known as Xperi Holding Corporation) (“Adeia”, “we”) is a leading IP licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and over 11,500 patents and patent applications worldwide. In order to serve an increasingly connected world, we invent, develop, and license fundamental innovations that enhance billions of devices and shape the way millions of people explore and experience entertainment. Through our IP licensing business, we help enable extraordinary experiences at home and on the go for millions of consumers around the world, with IP that helps elevate content and improves how audiences connect with it in a way that is more intelligent, immersive and personal. Through providing the IP that helps to power smart devices, entertainment experiences and more, we have created a unified ecosystem that reaches highly-engaged consumers and uncovered new business opportunities.

Previous wording

On October 1, 2022, Adeia Inc. (formerly known as Xperi Holding Corporation) (“Adeia”, “we”) completed the previously announced separation (“the Separation”) of its product business into an independent, publicly-traded company, Xperi Inc. (“Xperi Inc.”). The Separation was structured as a spin-off, which was achieved through Adeia’s distribution of 100 percent of the outstanding shares of Xperi Inc.’s common stock to holders of Adeia’s common stock as of the close of business on the record date of September 21, 2022 (the “Record Date”). Each Adeia stockholder of record received four shares of Xperi Inc. common stock for every ten shares of Adeia common stock that it held on the Record Date. Following the Separation, Adeia retains no ownership interest in Xperi Inc., which is now listed under the ticker symbol “XPER” on the New York Stock Exchange. Effective at the open of business on October 3, 2022, Adeia’s shares of common stock, par value $0.001 per share, began trading on the Nasdaq Global Select Market under the new ticker symbol “ADEA”.

Current wording

On October 1, 2022, we completed the previously announced separation (“the Separation”) of its product business into an independent, publicly-traded company, Xperi Inc. (“Xperi Inc.”). The Separation was structured as a spin-off, which was achieved through Adeia’s distribution of 100 percent of the outstanding shares of Xperi Inc.’s common stock to holders of Adeia’s common stock as of the close of business on the record date of September 21, 2022 (the “Record Date”). Each Adeia stockholder of record received four shares of Xperi Inc. common stock for every ten shares of Adeia common stock that it held on the Record Date. Following the Separation, Adeia retains no ownership interest in Xperi Inc., which is now listed under the ticker symbol “XPER” on the New York Stock Exchange. Effective at the open of business on October 3, 2022, Adeia’s shares of common stock, par value $0.001 per share, began trading on the Nasdaq Global Select Market under the new ticker symbol “ADEA”.

Previous wording

Headquartered in Silicon Valley with more than 35 years of operating experience, we have approximately 135 employees, with substantially all of our employees located in the U.S.

Current wording

Headquartered in Silicon Valley with more than 35 years of operating experience, we have approximately 140 employees, with substantially all of our employees located in the U.S.

Previous wording

In evaluating our financial condition and operating performance, we primarily focus on revenue and cash flows from operations. For the three months ended March 31, 2024, as compared to the same period in 2023:

Current wording

In evaluating our financial condition and operating performance, we primarily focus on revenue and cash flows from operations. For the three and six months ended June 30, 2024, as compared to the same periods in 2023:

Previous wording

The following table sets forth our revenue for the three months ended March 31, 2024 and 2023 (in thousands, except for percentages):

Current wording

The following table sets forth our revenue for the three and six months ended June 30, 2024 and 2023 (in thousands, except for percentages):

Previous wording

The decrease in revenue during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily attributable to the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023, for which a portion of revenue was recognized up-front in such quarter.

Current wording

The decrease in revenue during the six months ended June 30, 2024, as compared to the same period in 2023, was primarily attributable to the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023 and a decline in royalty revenue from certain Pay-TV customers, partially offset by a multi-year agreement with X Corp. for access to our media portfolio in the second quarter of 2024 and recurring revenue from long-term renewals with Samsung for access to our media portfolio in the second half of 2023.

Previous wording

Non-recurring revenues for the three months ended March 31, 2024 and 2023 were $0.6 million and $32.9 million, respectively. The decreased was primarily attributable to the execution of long-term license agreements with Kioxia and Western Digital in the first quarter of 2023.

Current wording

Non-recurring revenues for the six months ended June 30, 2024 and 2023 were $5.7 million and $34.6 million, respectively. The decrease of $28.8 million was primarily attributable to the execution of long-term license agreements with Kioxia and Western Digital in the first quarter of 2023, partially offset by a settlement agreement and multi-year renewal with X Corp. for access to our media portfolio in the second quarter of 2024.

Previous wording

The increase in R&D expense during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to an increase in personnel costs as a result of increased headcount.

Current wording

The increase in R&D expense during the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due an increase in patent prosecution, defense and assertion costs.

Previous wording

The decrease in amortization expense during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to certain intangible assets becoming fully amortized during 2023. The decrease was partially offset by an increase in amortization expense as a result of patents acquired during the period.

Current wording

The decrease in amortization expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to certain intangible assets becoming fully amortized during 2024. The decrease was partially offset by an increase in amortization expense as a result of patents acquired in 2024.

Previous wording

The increase in litigation expense during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to increased case activity in current litigation matters.

Current wording

The increase in litigation expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to increased case activity in current litigation matters.

Previous wording

The decrease in interest expense during the three months ended March 31, 2024, as compared to the same periods in 2023, was primarily due to lower debt balance and amortization of debt discount and issuance costs, partially offset by increased interest rates on our variable interest rate debt due to the rising interest rate environment.

Current wording

The decrease in interest expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to lower debt balance and amortization of debt discount and issuance costs, partially offset by increased interest rates on our variable interest rate debt due to the rising interest rate environment.

Previous wording

We anticipate interest expense will continue to decrease in 2024, when compared to 2023, as a result of a full year of a lower debt balance and amortization of debt discount and issuance costs.

Current wording

We anticipate interest expense will continue to decrease in 2024, when compared to 2023, as a result of a full year of a lower debt balance, amortization of debt discount and issuance costs and the reduction of the interest rate margin due to the repricing of our Term Loan B during the second quarter of 2024.

Previous wording

The decrease in other income and expense, net during the three months ended March 31, 2024, as compared to the same periods in 2023, was primarily due to a decrease in realized gains on our investments in marketable securities, partially offset by an increase in interest income from significant financing components from certain revenue contracts.

Current wording

The decrease in other income and expense, net during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to a decrease in realized gains on our investments in marketable securities, partially offset by an increase in interest income from significant financing components from certain revenue contracts.

Previous wording

Our income tax provision for interim periods is based on the estimated annual effective tax rate adjusted for discrete items during the period. For the three months ended March 31, 2024, and March 31, 2023, we recorded income tax expense of $5.7 million and $11.8 million, respectively, on pretax income of $6.6 million and $40.8 million, respectively. The decrease in income tax expense for the three months ended March 31, 2024, as compared to the same period in the prior year was primarily due to a decrease in pretax income.

Current wording

For the three months ended June 30, 2023, we recorded an income tax expense of $2.4 million on pretax income of $3.8 million, and for the six months ended June 30, 2023, we recorded an income tax expense of $14.2 million on pretax income of $44.6 million, which resulted in effective tax rates of 61.9% and 31.8%, respectively, for the three and six months ended June 30, 2023. The decrease in income tax expense for the three and six months ended June 30, 2023, as compared to the same period in the prior year was primarily due to a decrease in pretax income.

Previous wording

The effective tax rate varies from the 21% U.S. federal tax rate due to foreign withholding taxes, state income taxes, and unrealized foreign exchange gain or loss from prior year South Korea withholding tax refund claims.

Current wording

The effective tax rate varies from the 21% U.S. federal tax rate primarily due to unrealized foreign exchange gain or loss on prior year South Korea withholding tax refund claims.

Previous wording

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents for the three months ended March 31, 2024 and 2023.

Current wording

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents for the six months ended June 30, 2024 and 2023.

Previous wording

Our primary sources of liquidity and capital resources are our operating cash flows and our short-term investments in marketable securities. Cash, cash equivalents and marketable securities were $89.0 million at March 31, 2024, an increase of $5.4 million from $83.6 million at December 31, 2023. This increase primarily resulted from $67.2 million of cash generated from operations, partially offset by $40.1 million in repayment of our long-term debt, $7.7 million in repurchases of common stock associated with tax withholdings on equity awards, $5.4 million in dividends paid, $0.8 million in purchases of property and equipment, and $8.5 million in purchases of intangible assets.

Current wording

Our primary sources of liquidity and capital resources are our operating cash flows and our short-term investments in marketable securities. Cash, cash equivalents and marketable securities were $94.5 million at June 30, 2024, an increase of $10.9 million from $83.6 million at December 31, 2023. This increase primarily resulted from $90.7 million of cash generated from operations, and $1.6 million in proceeds from purchases through our employee stock purchase program and exercise of stock options, partially offset by $52.1 million in repayment of our long-term debt, $9.1 million in repurchases of common stock associated with tax withholdings on equity awards, $10.9 million in dividends paid, $1.2 million in purchases of property and equipment, and $8.5 million in purchases of intangible assets.

Previous wording

For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Other than the principal payments of $40.1 million made by us under the Refinanced Term B Loans during the three months ended March 31, 2024, our cash requirements have not materially changed since December 31, 2023.

Current wording

For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Other than the principal payments of $52.1 million made by us under the existing Term Loan B during the six months ended June 30, 2024, our cash requirements have not materially changed since December 31, 2023.

Previous wording

We expect to continue to make additional payments on our existing debt from cash generated from operations. Our material cash requirements include the following contractual and other obligations.

Current wording

We expect to continue to make additional payments on our existing debt from cash generated from operations. In addition to the cash requirements outlined above, we have returned cash to stockholders through both quarterly dividend payments and repurchases of our common stock under our stock repurchase plan.

Previous wording

Cash flows provided by operations were $67.2 million for the three months ended March 31, 2024, were primarily due to our net income of $0.9 million being adjusted for non-cash items of amortization of intangible assets of $23.2 million, amortization of debt issuance costs of $0.8 million, stock-based compensation expense of $5.1 million and $34.8 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2023.

Current wording

Cash flows provided by operations were $90.7 million for the six months ended June 30, 2024, were primarily due to our net income of $9.3 million being adjusted for non-cash items of amortization of intangible assets of $43.2 million, amortization of debt issuance costs of $1.6 million, stock-based compensation expense of $11.7 million, depreciation of property and equipment of $1.0 million and $24.5 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2023.

Previous wording

Cash flows provided by operations were $63.4 million for the three months ended March 31, 2023, primarily due to our net income of $29.0 million being adjusted for non-cash items of amortization of intangible assets of $23.7 million, deferred income taxes of $2.4 million, amortization of debt issuance costs of $1.2 million and stock-based compensation expense of $3.6 million. These increases were partially offset by $2.5 million in changes in operating assets and liabilities including payment during the quarter of employee bonuses earned in 2022.

Current wording

Cash flows provided by operations were $92.1 million for the six months ended June 30, 2023, primarily due to our net income of $30.4 million being adjusted for non-cash items of amortization of intangible assets of $47.3 million, deferred income taxes of $1.5 million, amortization of debt issuance costs of $2.2 million and stock-based compensation expense of $8.2 million. These increases were partially offset by $1.7 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2022.

Previous wording

Net cash used in investing activities was $11.0 million for the three months ended March 31, 2024, primarily related to purchases of short-term investments of $11.2 million, purchases of property and equipment of $0.8 million, purchases of intangible assets of $8.5 million, and proceeds from maturities of investments of $9.5 million.

Current wording

Net cash used in investing activities was $8.2 million for the six months ended June 30, 2024, primarily related to purchases of short-term investments of $18.7 million, purchases of property and equipment of $1.2 million, purchases of intangible assets of $8.5 million, and proceeds from maturities of investments of $20.2 million.

Previous wording

Net cash used in investing activities was $0.4 million for the three months ended March 31, 2023, primarily related to capital expenditures.

Current wording

Net cash used in investing activities was $25.4 million for the six months ended June 30, 2023, primarily related to purchases of short-term investments of $23.8 million and capital expenditures of $1.5 million.

Previous wording

Our capital expenditures for property and equipment consist primarily of leasehold improvements, purchases of computer hardware and software, information systems, and semiconductor production and test equipment. During the three months ended March 31, 2024 and 2023, we spent $0.8 million and $0.4 million on capital expenditures, respectively, and we expect capital expenditures in the remainder of 2024 to be approximately $2.0 million. Our capital expenditures for intangible assets consists primarily of acquired patents. During the three months ended March 31, 2024, we spent $8.5 million on purchases of intangible assets. These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents and short-term investments. There can be no assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs.

Current wording

Our capital expenditures for property and equipment consist primarily of leasehold improvements, purchases of computer hardware and software, information systems, and semiconductor production and test equipment. During the six months ended June 30, 2024 and 2023, we spent $1.2 million and $1.5 million on capital expenditures, respectively, and we expect capital expenditures in the remainder of 2024 to be approximately $1.0 million. Our capital expenditures for intangible assets consists primarily of acquired patents. During the six months ended June 30, 2024, we spent $8.5 million on purchases of intangible assets. These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents and short-term investments. There can be no assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs.

Previous wording

Net cash used in financing activities was $52.8 million for the three months ended March 31, 2024 due to $40.1 million in repayment of indebtedness, $5.4 million in dividends paid, $7.7 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $0.5 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Current wording

Net cash used in financing activities was $70.5 million for the six months ended June 30, 2024 due to $52.1 million in repayment of indebtedness, $10.9 million in dividends paid, $9.1 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.6 million in proceeds from purchases through our employee stock purchase program and exercise of stock options.

Previous wording

Net cash used in financing activities was $95.1 million for the three months ended March 31, 2023 due to $83.6 million in repayment of indebtedness, $5.3 million in dividends paid, $6.6 million in repurchases of common stock, partially offset by $0.4 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Current wording

Net cash used in financing activities was $120.7 million for the six months ended June 30, 2023 due to $103.8 million in repayment of indebtedness, $10.6 million in dividends paid, $7.5 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.1 million in proceeds from purchases through our employee stock purchase program and exercise of stock options.

Previous wording

On June 8, 2021, we amended (the “Amendment”) that certain Credit Agreement dated June 1, 2020 by and among us, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “2020 Credit Agreement”). The 2020 Credit Agreement initially provided for a five-year senior secured term B loan facility in an aggregate principal amount of $1,050 million (the “2020 Term B Loan Facility”). The Amendment provided for, among other things, (i) a new tranche of term loans (the “Refinanced Term B Loans”) in an aggregate principal amount of $810.0 million, (ii) a reduction of the interest rate margin applicable to such loans to (x) in the case of base rate loans, 2.50% per annum and (y) in the case of Eurodollar loans, LIBOR plus a margin of 3.50% per annum, (iii) a prepayment premium of 1.00% in connection with any repricing transaction with respect to the Refinanced Term B Loans within six months of the closing date of the Amendment, (iv) an extension of the maturity to June 8, 2028, and (v) certain additional amendments, including amendments to provide us with additional flexibility under the covenant governing restricted payments. We commenced repaying quarterly installments under the Refinanced Term B Loans in the third quarter of 2021.

Current wording

On June 8, 2021, we entered into Amendment No. 1 (“Amendment No. 1”) to that certain Credit Agreement dated June 1, 2020 by and among us, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “2020 Credit Agreement”). The 2020 Credit Agreement initially provided for a five-year senior secured term loan B facility in an aggregate principal amount of $1,050 million (the “2020 Term Loan B Facility”). Amendment No. 1 provided for, among other things, (i) a new tranche of term loans (the “2021 Refinanced Term Loan B”) in an aggregate principal amount of $810.0 million, (ii) a reduction of the interest rate margin applicable to such loans to (x) in the case of base rate loans, 2.50% per annum and (y) in the case of Eurodollar loans, LIBOR plus a margin of 3.50% per annum, (iii) a prepayment premium of 1.00% in connection with any repricing transaction with respect to the 2021 Refinanced Term Loan B within six months of the closing date of Amendment No. 1, (iv) an extension of the maturity to June 8, 2028, and (v) certain additional amendments, including amendments to provide us with additional flexibility under the covenant governing restricted payments.

Previous wording

On May 30, 2023, we amended the 2020 Credit Agreement to replace the reference to LIBOR as the base rate with the reference to the Secured Overnight Financing Rate “SOFR” as administered by the Federal Reserve Bank of New York. At March 31, 2024, $561.1 million was outstanding under the Refinanced Term B Loans with an interest rate, including unamortized debt discount and issuance costs of $14.8 million. Interest is payable monthly. Under the existing loan agreements, we have future minimum principal payments for our debt of $30.4 million in the remainder of 2024, $40.5 million each year from 2025 through 2027, with the remaining principal balance of $409.3 million due in 2028. After the Separation, we own the debt under the Refinanced B Term Loans. Additionally, we paid $29.1 million during the three months ended March 31, 2024, based on certain leverage ratios and our excess cash flow generated for the year ended December 31, 2023. We are obligated to continue to pay a portion of excess cash flows on an annual basis. The Refinanced Term B Loans contain customary covenants, and as of March 31, 2024, we were in full compliance with such covenants.

Current wording

At June 30, 2024, $549.1 million was outstanding under the term loan B facility with an interest rate, including unamortized debt discount and issuance costs of $13.5 million. Interest is payable monthly. Under the existing loan agreement, we have future minimum principal payments for our debt of $14.0 million in the remainder of 2024, $28.1 million each year from 2025 through 2027, with the remaining principal balance of $450.9 million due in 2028. After the Separation, we own the debt under the term loan B facility. Additionally, we paid $29.1 million during the six months ended June 30, 2024, based on certain leverage ratios and our excess cash flow generated for the year ended December 31, 2023. We are obligated to continue to pay a portion of excess cash flows on an annual basis. The term loan B facility contains customary covenants, and as of June 30, 2024, we were in full compliance with such covenants. The 2020 Credit Agreement, as amended, also requires that we continue to make cash payments on an annual basis based on certain leverage ratios and excess cash flow generated for the immediately preceding fiscal year. The cash payments are applied to the remaining principal balance due at final maturity.

Previous wording

During the three months ended March 31, 2024, there were no significant changes in our critical accounting policies and estimates. See “Note 2 –Summary of Significant Accounting Policies” of Notes to Condensed Consolidated Financial Statements for additional detail. For a discussion of our critical accounting policies and estimates, see Part II, Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.

Current wording

During the three and six months ended June 30, 2024, there were no significant changes in our critical accounting policies and estimates. See “Note 2 –Summary of Significant Accounting Policies” of Notes to Condensed Consolidated Financial Statements for additional detail. For a discussion of our critical accounting policies and estimates, see Part II, Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.